If money is worth 12% compounded quarterly and n = 5, compute the present value of the following: (a) P1.00 received monthly in year n. (b) P1.00 received monthly for n years. answer: a) P 7.02 b) P 45.08

If money is worth 12% compounded quarterly and n = 5, compute the present value of the following: (a) P1.00 received monthly in year n. (b) P1.00 received monthly for n years. answer: a) P 7.02 b) P 45.08

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter1: Understanding Personal Finance

Section1.4: Perform Time Value Of Money Calculations

Problem 3CC

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

If money is worth 12% compounded quarterly and n = 5, compute the present value of the following: (a) P1.00 received monthly in year n. (b) P1.00 received monthly for n years.

answer: a) P 7.02
b) P 45.08

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